A downer for air cargo: What accounts for stagnation of industry in FY23

The global economic downturn, issues with China and a shift towards sea and surface transport have impacted both the domestic and international business in FY23

After taking off again following a pandemic dislocation in FY22, domestic and international cargo carried by airlines in FY23 expanded just 0.6 per cent year-on-year (y-o-y) to 3.16 million tonnes.  Several factors contributed to this slow growth, including the global economic downturn, the suspension of cargo-in-cabin flights by carriers, decreased demand for medical supplies after the pandemic, inflationary pressures in major markets like the USA and Europe, a shift towards sea and surface transportation for cargo, and the impact of lockdowns in China. 

Additionally, the rising passenger load factor resulted in reduced belly space for freight on passenger aircraft. 

The air cargo sector in India had been growing consistently for at least five years before the Covid-19 pandemic hit in March 2020. Growth contracted by 25.7 per cent in FY21 before jumping back by 27 per cent in FY22, according to the Airports Authority of India's data that has been reviewed by Business Standard. (see chart 1).

But FY23 was not an encouraging year for the air cargo sector: Domestic air cargo increased by 9.7 per cent, international air freight -- which is much larger than domestic cargo -- decreased by 4.9 per cent. It is this contraction that has stakeholders worried.

"Delhi airport operates the highest number of cargo movements to Afghanistan, China and Hong Kong compared to any other airport in India. The after-effects of geopolitical factors resulted in lower export orders," Delhi International Airport Limited (DIAL) stated. 

It added that electronic imports -- which account for half Delhi airport’s imports from China -- have been affected by the lockdown in that country and ongoing legal obligations and cases against Chinese electronics manufacturers in India.

International freight handled at the Delhi airport - decreased by 8.7 per cent y-o-y to 550,480 tonnes in FY23. The suspension and reduction of airlines' flights operating from China and Hong Kong have directly affected import movement, and high inflation in the United States and European Union (touching approximately 11 per cent) have resulted in low export orders, GMR Group-led DIAL explained. International cargo movement has also shifted from air to sea and surface due to available capacity, efficiency and price, it added.

Air cargo traffic in India is skewed towards international geographies; 23 per cent of inbound traffic and about 28 per cent of outbound traffic is from Europe, Jagannarayan Padmanabhan, Senior Director-Consulting, CRISIL Market Intelligence and Analytics, said. "As we all know there are cost and growth pressures in this Europe region. That could have had an impact in the moderation of growth," he explained.

International cargo handled at the Mumbai airport, too, which is India's second largest, contracted by three per cent y-o-y to 540,137 tonnes in FY23. Similarly, international cargo handled at the Ahmedabad airport decreased by 8.4 per cent y-o-y in FY23. The Adani Group -- which operates both Mumbai and Ahmedabad airports-- did not respond to queries sent by this newspaper.

Bangalore airport -- which is operated by Fairfax-led Bangalore International Airport Limited (BIAL) -- observed its international cargo volumes contract by 5.8 per cent y-o-y in FY23. Its Chief Strategy and Development Officer Satyaki Raghunath explained that as a function of a decline in India's exports mainly due to the global demand slowdown, high inflation, and rising interest rates.

Vinay Kumar G, Vice President and Sector Head – Corporate Ratings, ICRA, said that around 40 per cent of India’s inbound air cargo originates from East Asia (China, Japan and South Korea etc.) and is dominated by electronics, heavy machinery components and healthcare products. As trade with China was impacted in FY23 due to Covid-related restrictions, international cargo volumes declined 4.7 per cent in FY23. 

"Nevertheless, domestic cargo was resilient in FY23, with a growth of around 10 per cent on the back of higher volumes from e-commerce business and strong domestic economy. This has resulted in an overall air cargo growth of around one per cent in FY23," he added

The international cargo on scheduled flights of IndiGo -- India's largest carrier -- dropped from 46,777 tonnes in FY22 to 35,949 tonnes in FY23. This was in contrast to the growth in FY22 when international cargo volumes almost quadrupled.

IndiGo said that two factors -- withdrawal of cargo-in-cabin flights from July 2022 onwards and rising passenger load factors reducing the belly space -- have led to the decline in FY23. In April 2020, the Directorate General of Civil Aviation (DGCA) had allowed airlines to carry cargo in the passenger cabin apart from the aircraft belly.

"During FY22, IndiGo carried 45,000 tonnes of international air cargo which was split 50 per cent carried on passenger aircraft bellies and 50 per cent on "cargo-on-floor aircraft" (cargo-in-cabin flights). In FY23, IndiGo carried 35,000 tonnes of international cargo which, when you factor in the cessation of "cargo-on-floor aircraft" operations and look at the pure passenger belly cargo, there is a real term 20.3 per cent growth in cargo carried. It is very important to factor in the impact that "cargo-on-floor aircraft" had during FY22," IndiGo explained.

Padmanabhan also talked about the additional cargo that the airlines were carrying during the pandemic to earn revenues, which was "normalised" once the government removed restrictions on scheduled flight operations. India removed pandemic-induced restrictions on scheduled domestic and international flights from October 2021 and March 2022, respectively. 

IndiGo said that the uplift capacity of air cargo has a direct correlation with passenger load factor (occupancy rate). "This is particularly the case on narrow-body operations where increased load factor leads to an increase in the passenger baggage of a flight and thus limits the capacity available for air cargo. As travel restrictions have lifted post pandemic there has been a marked increase in passenger load factor," it added. IndiGo added two freighter aircraft in its fleet in FY23 to boost its cargo-carrying capacity.

SpiceJet -- which has been making losses since FY19 -- saw its international cargo volume fall from 53,225 tonnes in FY22 to 7,284 tonnes in FY23. This was in contrast to the 11 per cent y-o-y growth in its international cargo volume during FY22. SpiceJet said that in FY22, SpiceXpress (its cargo arm) was operating between 15-21 cargo aircraft including wide-body planes at different points in time. "The number of aircraft being operated was in proportion to the demand at that time, as also a restriction on international flights and various other reasons. The fleet size has reduced since then," the airline mentioned.

There was a decline in international cargo carried from India of nearly 6 per cent y-o-y in FY23 as some of the "pandemic driven flows (such as medical supplies/PPE, vaccines, oxygen tanks, etc) have ceased, while other carriage have gone back to their traditional modes of transport (marine, surface for domestic/South Asia)", it explained. Meanwhile, SpiceXpress will add more capacity in this fiscal year to serve the niche market and client base it has developed, it added.

IndiGo has added two wide body passenger aircraft B777 in its fleet through a wet lease arrangement with Turkish Airlines. These two planes can carry 15-20 tonnes more cargo per flight. "Through the increase in passenger aircraft capacity as well as increased utilisation on the freighter aircraft, IndiGo is expecting to grow its international cargo volumes although it will not be able to replicate the capacity that was available when a number of "cargo-on-floor aircraft" were in operation during the pandemic period," the carrier stated.

According to experts, India's cargo traffic is expected to see muted growth in FY24 too. Padmanabhan said that in FY24, we could see a 2.5 per cent growth in international air cargo traffic and about 1.5 per cent in domestic traffic. 

Vinay Kumar G said that owing to the reopening of the Chinese market, the growth in overall air cargo volumes is expected to improve to 2-3 per cent in FY24. International cargo movement to and from India is likely to increase in the second half of the current financial year, amid expectations of recovery in the global economy, he added.